Legalese — Splitting Retirement Assets

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One of the consequences of getting divorced is splitting up assets.  Other than a house or real estate, one of the biggest assets that people tend to have is a retirement account or pension.  Those can be trickier to divide since you can’t just sell them to divide up the value.  Unless you are older than 59 ½ you can’t pull the money out of most retirement accounts without a penalty.  For a pension, you don’t even have access to the money, with or without a penalty.  So how do you give half (or whatever percentage) to your soon-to-be-ex-spouse?

The answer, at least in Georgia, is a Qualified Domestic Relations Order, or QDRO, pronounced “QUAD-row.”  A QDRO is a separate court order that is issued by the same court that issued your divorce decree that splits up your retirement account.  It doesn’t take the money out of your retirement account, it takes a cleaver to it and carves off a piece in whatever way your divorce decree says it should be divided.  That may be a percentage as of a certain date, or it may be a particular dollar figure.  The QDRO then creates a separate retirement account for the receiving spouse in his or her name.

QDROs are super-duper complicated, and if you can avoid having to use one, you are usually better off doing so.  Some retirement accounts will let you ‘roll over’ a portion of the retirement account into the receiving spouses already established (or newly established) retirement account.  There is no general form order that you can use to write up your QDRO.  Every company and every retirement account holder has its own particular nit-picky requirements that it wants.  Some are gracious enough to give you a form, but most are not.   You have to have the QDRO approved by the company AND the Court before it will be of any use to you.

On top of that, there are some companies and entities that simply won’t recognize QDROs.  What?  You say in your most reasonable voice.  It’s a friggin’ COURT ORDER!  How can they ignore a COURT ORDER?  Very simply.  Most retirement accounts are created under the Federal Tax Code and therefore not subject to the regulation of the State Courts since the states can’t tell the feds what to do just like kids can’t tell parents what to do (not that they don’t try.)   The most likely entities to ignore QDROs are government entities like the military, state governmental agencies, and teacher’s retirement systems.  Sovereign immunity[1] also prevents the Courts from doing anything about it.

When you are signing a fee agreement with your divorce attorney, do not assume that the price you paid includes the preparation of any QDROs unless it specifically says so.  QDROs are their own specialty and can be very complicated and somewhat expensive.  You can avoid them by trading around other assets, if there are other assets to trade around.   Make sure that your settlement agreement for your divorce includes not only the details about how the retirement account is going to be split up but who is going to pay for the preparation of the QDRO.

Splitting up retirement assets can be one of the most contentious parts of divorce negotiations.  Often, the party having to give up the retirement asset feels like everything they have worked for in their whole career is disappearing into the hands of someone they barely like.  The person getting the assets feels like they have been counting on the other party to support them in retirement and now their future is uncertain and what they are getting is so much less.  There’s very little good about divorce.  QDROs are an imperfect means to help people split up assets without tax consequences or other penalties to at least soften the blow a little bit.

[1] Sovereign immunity is a doctrine that basically says you can’t sue the government except in very limited circumstances because to do so would distract the government from doing the essential business of the people and waste valuable tax dollars.

Nothing in this article should be construed as legal advice.  It is being offered for informational purposes only.  

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